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Why is trading such a mind game?

by Bruno Deshayes on 23 Jun 2016 permalink
One buys at the current price, one sells at the same current price. A transaction takes place: Can they be both right?

If they are both entering the market one with a long position and one with a short position obviously they have two opposite views as to what the market might do next.

So this is the game of bluff that goes on in our trading exchanges (casinos?) Has investing turned into a game of poker?

How long are you prepared to wait until you bring the bacon home? Are you rationalizing a bad trade by saying you are in it for the long term? Shouldn't that capital be used to ride on a profitable trade instead?

How far in the red are you prepared to let the market go before you call it quits? Do you have a stop in place? Are you thinking about moving it away to take more risk? Can someone see all the stop orders in place and manipulate the market to hit them all and make a quick profit when the stock returns to where it was?

"You have to be in it to win it!" Sometimes you wish you were not into anything at all. Does your trading keep you awake at night? Does your partner know what you are doing?

Do you have enough integrity to monitor your own trading performance? Do you keep a log of all your past trades and the assumption you made at the time you entered each trade? I mean do you set an entry point, an exit point and a stop point BEFORE you place a trade? That is the only way to find out if your method is profitable or not. If it is then you know how long the longest string of losing trades was. You also know that each trade you took brought home x dollars in profit.

In that case instead of fretting and if you keep to your strategy - each new trade in the long run should simply fit into your law of averages - bringing home x dollars of profit. This is simply what you earned for the risk you took, for your participation in bringing liquidity into the market...

You know all that good stuff - so why is it not working for you? The reason might be that you are cheating, have become impatient and are breaking your own rules. That's easy to fix - get back to your own discipline. Don't confuse speculation with gambling.

There is still another reason why things might go astray: the market may have changed just like tides and equinoxes do - you have to redo your analysis all over again.


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